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Opinion Contributor

Medical device tax would thwart innovation

This policy is already having a real-world, everyday impact, the author writes. | Reuters

This innovation tax also targets an American manufacturing sector created by companies choosing to locate in the United States even as markets grow beyond our borders. As a result, America’s medical technology workers delivered $135.9 billion of innovative products to patients worldwide in 2011. The U.S. accounts for 40 percent of the global medical technology market. We have a $5.4 billion trade surplus because American workers create high-tech, top-quality medical devices and diagnostic tests that are in demand around the world.

And yet, this tax threatens these gains. At least three studies have estimated the tax will cost tens of thousands of jobs — by one estimate as many as 43,000 jobs. Surely now is not the time to put a greater strain on the U.S. economy.

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In a bipartisan fashion unusual for recent years in Washington, many in Congress agree that the medical device tax poses a significant threat to American manufacturers, workers and — most disturbingly — patients. This past summer, a repeal bill was overwhelmingly passed in the U.S. House, with 37 Democrats voting to repeal the tax. In recent weeks, an increasing number of Democratic members of the Senate have expressed support for eliminating the tax.

Repealing the device tax will allow America’s medical device developers, who support 2 million jobs nationwide, to continue to invest in innovation — creating jobs and maintaining America’s global leadership in new, lifesaving medical technology. This is the wrong time to punish that innovation. Congress can and should act now to repeal the medical device tax.

Dan Moore is president and CEO of Cyberonics and chairman of the board of directors for the Medical Device Manufacturers Association. Greg Sorensen is chief executive officer of Siemens Healthcare North America and chairman of the board of directors for the Medical Imaging & Technology Alliance. Timothy M. Ring is chairman and chief executive officer of C. R. Bard and serves on the executive committee of the Advanced Medical Technology Association.

yeah theses people are obviously liars just like the republicans and the 37 democrats in the house. i bet those dems are really evil demonic repubs in disguise. oh and look some senate dems are starting to think it isn't such a grand idea. i bet those senators are lying evil demonic repubs in disguise too.

The excise tax on medical devices is 2.3%. If 2.3% can kill the market for a device, it's not very valuable in the first place.

What I'd like to know is why hospitals let their doctors build an MRI facility on or near hospital grounds and keep the profits for themselves. Then the hospitals us ask for donations. Of course, the same doctors find lots of reasons to order MRIs, irradiating their patients and pumping up medical costs.

Seriously flawed article from a promoter. 2.3% is nothing when you are selling something that adds marginal value at an enormous new cost to the treatment of a particular disease, and thus limits the access everyone has to basic care. Most medical innovations, equipment or drugs, are copycats, add little except at the margins of value and add vastly to the cost of care because every hospital is full of reps hawking their newer thing that has very little evidence for it's superiority..

This is a one sided article, I ignores the new customers they said device companies would get under the health care law's expansion of coverage. They said for an industry expected to earn $1.5 trillion in revenue over the next decade, a $29 billion tax was a small price to pay. Many of the device makers were in favor of the gimmies under the law, now they object to paying their fair share? Typical GOP attitude!

As one who has spent a lifetime in the medical devices industry (but who, unlike the CEOs who wrote this opinion piece, hasn't made an obscene fortune in it), I call BS. Medical devices and diagnostic testing technologies sell at truly obscene profit margins; 75 to 80% gross profit margins are not uncommon. This is one of the major reasons why medical care costs so much in this country: because manufacturers reap huge profits every time a test or a procedure is ordered by a doctor.

As an industry, the major medical device manufacturers have for many years now been steadily decreasing their R&D spend as a fraction of total revenues, and offshoring their R&D, mostly to India and China. This has nothing to do with tax policies discouraging innovation, and everything to do with the fact that large companies have faced up to the fact that they are simply too big to innovate and waste too much money trying; they leave that to the start-ups, then they buy up the best of these, lay off most of the R&D staff, and reap the profits.

Medical technology companies receive tremendous financial benefits and incentives from government: the R&D tax credit (which is widely abused) and NIH-funded university research (where most of the real innovations come from) being two important examples which taxpayers pay huge sums to provide. In return, these increasingly globalized companies de-patriate as much of their profits as possible, waiting for the inevitable 'tax holidays' which will enable them to repatriate those earnings tax free.

It is not unreasonable to ask these cash-machines to pay their fair share of running our civilization. They're certainly not doing that now.

This is very real, especially to start ups. As a start up VC in this space, it makes a difficult environment almost untenable. Ask a device entrepreneur what the funding environment is like and you will get an ear full. It is awful. 2.3% off the top is WAY more off the bottom on a business model with 20% operating margins. Yes some of these businesses have high Gross margins, but the operating costs are very high and the operating margins are less than most IT companies. Oh, and don't forget it takes a device 5-10 years from inception to profitability given FDA and reimbursement regulations. Think about the time value of money on the initial investment and what you need to get back to cover the already high risk of seeing any money 5-10 years away. There is a reason people aren't funding this space right now. Capital is going to IT and other better returning areas. Simple economics. This policy simply puts a bullet in the head of early stage device companies. IMO this is poor, uneducated policy. I am all for increasing our tax base, but let's do so with policies that encourage entrepreneurship, not crush it.

medicalventure makes some quite good points regarding the start-up company medical device world, as do I regarding the Fortune 500s (i.e., the GEs and Siemens and Beckmans, etc.)...see above. So the question isn't really "should the medical device tax be repealed?" Instead it is "At what level should the tax kick in?" By all means let's try to avoid making it even harder for innovative start-ups to succeed (medicalventure is right; for a variety of reasons their value propositions typically suck because this is a really hard business to break into), but let's not allow that to be used to let the GEs of the world get off scott free, as they do today (GE, for instance, is the poster child for tax avoidance: it pays an average corporate tax rate of just 2.3%...nice work if you can get it). So perhaps the right thing to do is to impose the device tax only on companies earning more than X dollars per year, where X is set to exclude struggling start-ups. Makes sense to me.

I don't think the ACA is really, truly paid for anyways, so if the Medical Device manufacturers are let off the hook, or a threshold is set, it just means more of a money shortfall to support the wonderful ACA.

Then, we can all pay more taxes to make up for the shortfall. Good times ahead!!!

BadBob - I don't know enough about the subject other than to say that the opinion authors are clearly biased and don't seem to see ANY other side to it. I know there is another side to it, namely that these devices are new treatments and they certainly drive up the cost of care. On the face of it it is reasonable to tax them to pay help pay for universal access. This insures the system pays for itself instead of having it become a burden for the government and taxpayers to handle.

At the same time, we don't want to discourage innovation in the smaller startups, reducing barriers to entry, not increasing them. How do we do that? DoubleDog and Medicalventure above seem to be giving it a much better shot, from opposite sides in a couple of posts than the authors of the article did.

No one likes taxes, they have real world impacts, I get that. We don't need umpteen articles to tell us that in uninformative generalities and anecdotes. I want to understand the cost versus benefit analysis of taxes in terms of the whole economy not just a biased member of the sector's take.

Device companies make jobs and we need them and no bad guys on the healthcare law as when it was written, things were different and a lot changed in a couple of years. I have been saying for a year to license and excise tax the data sellers as when you see companies like Walgreens making short of $800 million in 2010 selling data only, well guess how big that pot is.

Use the revenue to fund the FDA and the NIH instead of cutting. I think about this every time I pay an excise tax on a tire I need for my car to keep up the highway infrastructure and something needs to fund keeping up the government IT infrastructure.

http://ducknetweb.blogs...

Look at companies like this who mine credit data and don't even come under the government's jurisdiction..consumers can't see what he sells about them and he makes millions with a few servers...so this is what people do instead of having their company build factories and hire employees..it sucks...

http://ducknetweb.blogs...

We have to get in to the math soon and the business models. Interesting journal publication too about how people hate math and it causes pain, but Wall Street got over it a long time ago and they have all the money.